Faster Growth Begins with a Land Tax in U.S. Cities
bloomberg.com
bloomberg.com
Case A: ------- Undeveloped, small city. LVT kills any incentive for developers to purchase and build.
Case B: ------- Developed, large city. LVT hurts existing landowners, they become politically active and shut it down.
Also, land is already taxed as a part of property taxes.
I'm not sure this is right.
There would be an incentive to purchase unused or underused land -- the price will be lower! Relatively high taxes will encourage the landowner to sell the underperforming property rather than hold onto it for years waiting for its value to increase (speculation).
There would also be an incentive to build -- the developer can build as extravagantly as he wishes without dramatically increasing taxes. Want to build a giant tower? Tax is almost the same as if you built a parking lot.
Similarly, in a large developed city, LVT would probably _help_ existing property owners, if their property has a substantial building on it and is collecting good rent. If you own a parking lot or a crummy 2-story retail/2-apt building, then you're gonna have a hard time.
At least now you could buy a large lot and put, say a laundry building, there. With LVT, assuming minimum lot sizes remains a thing, simply disincentivizes small scale developments which is exactly what a undeveloped small city needs.
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TLDR: large scale development isn't going to happen in a small city, therefore the cost to even develop at all is now increased with LVT as there are minimum lot size requirements per zoning (for things like side walks and parking)
Regardless, you need not a small undeveloped city, just take an abandoned part of any city. The same thing applies.
The LVT may be the same percentage statewide, but the absolute amount of tax depends on the value of the land which is drastically different across regions. Cf downtown San Francisco vs farmland in the central valley.
> just take an abandoned part of any city
If it's abandoned (bad crime, fewer services etc) the land will be worth less than elsewhere in the city.
Property tax already takes into account both the improvements and the land. Property tax is also different depending on region.
The main purpose of LVT, I thought, was simply to abandon property tax and tax solely on the land, which would be assed on a square feet basis, with little consideration to the area. What you're already exists with property tax (albeit California AFAIK implemented something where your property isn't reassesed).
It's arbitrary that land in a desert is worth less than land in a major city?
> I see no difference between this and the existing property tax
Property tax: your parking lot in the middle of downtown San Francisco isn't worth much so we won't tax it much.
LVT: You could build a condo building on that parking lot, so we will tax you the same amount for the land as if you had.
LVT creates strong incentives to build useful things on the land.
Also, your desert example doesn't make sense. If the land is usable it will be taxed. If it is not usable it wouldn't be taxed heavily under the current scheme, nor would it be with LVT.
I think you're underestimating how much people are already taxed for their property.
So, an empty acre of land across the street from Central Park (I know, I know, but pretend it exists) is taxed the same, under an LVT, as that same acre sitting under a big mixed-use apartment/retail building. The building itself isn't taxed (though its presence will likely have a small effect on the overall rate in the area, provided it acts to increase the value of surrounding land).
Introduces confusion into a system that otherwise can't get too out of whack; after all, any arms-length sale of a property gets you a darn good idea of how much it is worth for taxation purposes. But since land is not usually sold separate from the buildings on it, an LVT allows perpetual divergence, and in the end you'll have ultra-valuable properties whose worth is, supposedly, all in the building and thus not taxed at all.
The point is to lower property taxes on the rich, raise them on the poor. LVT will have that effect, and that's the primary intent of most backers. In developed cities, the taxable property base will shift heavily from the city center toward the outskirts of the city.
Easy way to approach thinking about it: "large commercial buildings should be exempted from property tax, but as the city still needs funding, that lost revenue will be made up by raising everyone else's property taxes". It's a straight subsidy from the edges of the city to the center.
"You say your central NYC land is worth $1? Unfortunately we have to acquire it under eminent domain, but we'll pay you 1000x the value, a whole $1000!"
You can already attempt this with current property tax system. Somehow you never hear about people doing this one weird trick to avoid paying any property taxes. I guess it must be not so easy as you claim.
> Easy way to approach thinking about it: "large commercial buildings should be exempted from property tax, but as the city still needs funding, that lost revenue will be made up by raising everyone else's property taxes". It's a straight subsidy from the edges of the city to the center.
If that large commercial building is in the city center, then the land underneath it is valuable, and therefore owner will pay large tax bill just the same. And if you are concerned that in LVT system, you can build huge building and pay as much taxes as if you built a single family house, well, encouraging efficient use of land is the whole point.
Also, the current system is a subsidy from the dense neighborhoods, where the tax base is at, to edges of the city, where the city spends more of public funds per inhabitant. If people had to pay for their own road, water and power line, there would have been much less sprawl.
The article cites a mixed bag of experience (failure in Altoona, success but then abandoned in Pittsburgh). That's... not very much. It's far too early to talk about this as if the actual effects were certain. (And the article doesn't mention why Pittsburgh abandoned that approach, which I consider to be important data.)
The article (and the proponents) talk about LVT as if it were going to be a certain success and an unalloyed benefit. It may in fact be so, but it assumes facts that are not yet in evidence.
I'd bet that if your property has a single-family home on it and someone builds a huge 20-story block next to it, it will kill the value of your property, not rise it - shadow from the building, noise from construction, traffic, kids...
IMHO "disruptive" buildings like this should not be allowed without careful thought. In this case, for example, the infrastructure simply might not be there to support a 20-story (or for what its worth even a small 4-story!) building: electricity, telco, water and sewage feeds will need expansion which means months of ripped-open roads, the roads themselves usually won't support the amount of additional cars or public transportation.
This was the problem california had, paid off homes property tax became the same as renting an apartment, driving elderly out, and thus laws had to be passed to protect them.
There was a new stop light put in near my work, it cost 750k. For a stop light, the city waited years due to the cost. More expensive since it was on a main road, and part of the cost was flagers and lane reduction.
Costs are too expensive, even maintain streets in some areas due to low income homes and less property taxes, and the cure has been roundabouts instead of stop lights (or over passes on urban highways.
Its crazy. Don't even get me started on waste of an impact studies for homes but doesn't include roads.
And saw another report Vancover homes will be around 2.1 million average by 2030. Crazy.
Oh, is that why Prop 13 also applies to commercial property, people who can easily afford the increased property taxes, second homes, and heirs?
Prop 13 was a giant mistake. A narrow version to prevent grandma from getting kicked out of her longtime home would be fine, but the real thing is insanely broader than that.
I think bringing back any form of property tax is a brilliant idea; it would raise a ton of money for local governments, discourage people from holding empty units, and also help fix the ridiculous reality that building residential units hurts a municipality financially which causes all kinds of stupidity.
Take my building; it's owned by some vague partnership, is a 14 story high-rise with 100s of units, and for tax purposes it's worth something like $6M for the entire thing. In downtown San Francisco!
Trickle down fails again. Or succeeds wildly, depending on how much wealth you have invested.
The world needs affordable housing, so don't get me wrong. But what's infuriating is how often the conversation stops there. It's always about building more housing and creating affordability programs for the poor. Meanwhile forgetting that even middle class workers are being priced out of the market!
When your middle class can't afford (or can barely afford) the cost of housing, your problem extends beyond just that class.
I don't believe in "trickle down" economies, where consolidation of wealth into the hands of a few "lifts everyone up". What I do believe is important - for everyone - is a healthy, educated, middle class. In a way, the health and success of your middle class is like a barometer for the health of your society as a whole. When your middle class cannot afford to buy a home, cannot afford to begin a family, and cannot afford to live at or above the quality of life of the generation before them something is wrong.
Yes, we need to help the poor. Yes, we SHOULD have programs for that. But the conversation all too often stops there, and market rates are taken for granted.
What you don't want to become is city (or county, state or country for that matter) known for changing the rules of the game when its convenient.
Investors make what can be transformational improvements to a city. However the payback periods for a building can be on the order of decades (think Salesforce Tower - cost to build $1.1B, Salesforce lease will pay $560M but over 15 years).
The developer or investor takes on the risk and will by definition be in the red for the first decade or two (historically a 7% cap rate is expected - which is about a 15 year payback period). And that doesn't even including the planning period before the building gets built.
If a city suddenly changes the rules on a populist whim because suddenly the city is popular with the tech industry, future investors will definitely take notice and it will absolutely stifle any future investments in the city.
And what happens if you cannot afford the land tax? Does your home get taken away? The idea that only rich people own land is baseless. There are many poor people that own moderate/cheap homes on prime real estate in places like LA and San Diego. Most of these homes were built several decades and their property taxes were capped allowing them to stay in their homes. There needs to be a provision that certain individuals can avoid this land tax based on their income otherwise many people will lose their home because they can't pay the tax.
But. As long as we're comfortable taxing people, then why is it unjust to tax in this way? We're taxing in a way that allows the land to be better utilized for _everyone_.
Additionally, this person who bought this property decades can probably sell the property for a pretty penny, and move to a cheaper area, and have plenty of cash leftover.
I'm pretty sure you can not actually be imprisoned for failure to pay income taxes. You can be for filing fraudulent tax returns though. You can have the IRS take money from your bank account for not filing taxes though.
Okay, let's reframe it this way: the people collectively own all land through a corporation called The Government, where each person of voting age gets one voting share. The Government rents out land to individuals for a fee equal to the Land Value Tax...
There's usually an exemption on some dollar amount of LVT for your primary residence, provided that the municipality can verify it's actually your primary residence.
Additionally, this would ideally be implemented while also eliminating income taxes (and general sales taxes). One of the biggest benefits of this is that we would no longer _need_ to track everyone's income, and could even eliminate vasts amounts of bureaucracy like the IRS and state-level departments.
Then they aren't poor.
That can happen with property tax too though.
If the land tax goes that high, it means more value could be extracted from that land by building more densely on it. One way this could play out for a cash-poor landowner is to sell the land to a condo developer in exchange for a couple of condos in the new building and payment for temporary housing while construction is going on. I've known this kind of exchange to happen in many Indian cities. It works out very well for both parties.
Land Doesn't Generate Income: http://kaalvtn.blogspot.co.uk/2013/01/c-land-doesnt-generate...
People who come up with these crazy ideas seem to not have a solid grasp of supply and demand. The supply of land is not the problem. The supply of buildings is not the problem. The supply of competent municipalities that can sustain high density living is the problem.
The solution to lowering the cost city living is to increase the supply of cities. New ones, without the political baggage we have now. High density, modular, mass produced. If we're not talking about mass production, we're just rearranging deck chairs on the titanic.
The view you related may hold where there are caps on rental increases, but why would that hold anywhere else? In other words, what is the mechanism that forces a landlord to absorb the tax increase? If a-particular-piece-of-land is to be transitioned from land-the-speculation-and-investment-instrument to land-for-living, then the increase from taxation will already be included in the base rental rate.
Unless, the argument is that everyone is poor, so the landowner will not pass the tax onto renters. But, dependence upon large numbers of poor people is an odd way to structure places for renters to live.
Continuing with the same economics as what you posted: once some pieces of land are transitioned to land-for-living, then demand will increase for land-the-speculation-and-investment-instrument. Supply and demand isn't static. It fluctuates.
If the true goal is to have a place for people to live, then it is far cheaper for people if the government just rezones the area, assuming their employer didn't just lose a building.
That's the whole point of the land tax... if you want to plop a single-family home on a given parcel of land, you can if the single family wants to pay for the whole thing. But there's a strong incentive to build taller so more people competitively split the tax.
Quoting Henry George:
"The way taxes raise prices is by increasing the cost of production and checking supply. But land is not a thing of human production, and taxes upon rent cannot check supply. Therefore, though a tax upon rent compels owners to pay more, it gives them no power to obtain more for the use of their land, as it in no way tends to reduce the supply of land. On the contrary, by compelling those who hold land for speculation to sell or let for what they can get, a tax on land values tends to increase the competition between owners, and thus to reduce the price of land."
Take this counter example: City A implements a land tax to "encourage" developers to build units of affordable housing. Developers sitting on under-developed land start building units. Company A employs 10,000 people, most of them in the downtown region of City A. With the new land tax the next lease for Company A is higher enough due to this cost for them to consider a move to City B. City/State B offers them a nice tax break to move their jobs and headquarters and Company A does. Now out of 10,000 jobs, City A has many homes that are now available, units which were under development are no longer needed, prices drop, people can now afford housing but I cant imagine outside investment moving into the city. And this glosses over what happens to the developers, contractors, and others who will now be out of a large chunk of change due to the oversupply of housing and reluctant to re-invest into City A.
In the same vein, it would be hard to believe that any company looking for a "cheap" deal would consider City A if it did not already have a large pool of talent. If your a small to mid-size business do you take the risk of higher overhead regardless of property type to move to City A? If your a large company, why would you move your offices there just to pay much higher leasing costs?
While you have created more affordable housing, you have also created less desirable living and investment conditions.
At the end of the day, a cities desirability is mostly based on its ability to provide capital to its residents.
So the tax on nice buildings goes down, making the city more attractive to companies, incenting companies to move to City A and incenting capital to invest in properties in city A.
I would have to see some more detailed analysis that shows you can simultaneously set this rate at a point low enough to not kill current investors and high enough not create a huge budget hole for the city in question.
As to the dynamic you present, it looks like self-balancing in that there's an implied assumption that people really prefer City A to City B for various reasons (density among them, no doubt).
The great thing about all this is that we get to have 50 States, and many more cities altogether, experimenting (or not) with LVT, so we'll actually be able to measure the impact of LVT.
Investments like that would look a lot less desirable if the land was taxed in the proposed fashion.
1. A tax on the unimproved value of land, also called a land value tax.
2. A tax on improvements (buildings etc).
Currently the rate of tax 1 (LVT) is the same as the rate of tax 2. The assertion here is that it would be better for society if tax 1 were higher than tax 2, or even that tax 2 is zero and tax 1 is raised accordingly.
Getting rid of #2 would be really harmful and would be an absolute gift to the upper classes. Or, if it didn't cut taxes for the wealthy, it would significantly raise taxes on a lot of the middle class, forcing them out of smaller homes in good school districts.
Today's middle class has lots of political power. Tomorrow's middle class doesn't. We're allowing generations to extract wealth from those who come after them without considering the consequences.
Granted, mine is just one sample point, but it was enough to keep me interested and wanting to see further (and better) studies done.
Presumably rental, not ownership, cause the poor won't be able to pay the land tax!
I suppose there could be a homestead and/or income based exemption/reduction.
Another problem is super dense developments not paying their fair share. A skyscraper's residents are using way more of the city's resources than the small building next door, but with the same footprint they are paying the city the same amount. I suppose this would have to be fixed with some kind of income tax.
If anything, it should only be rich people who live in single family homes in the middle of dense cities, and they should pay taxes out the nose for the privilege.
basically a mild version of Lenin's "the main issue of revolution is the issue of land". Was very popular at the time.
Invoking Lenin doesn't really serve any purpose in this debate, it's just one rung above pointing your finger and shrieking about "communism" and "preserving judeo-christian civilization."
This is arguing for increased taxation of idle assets. Society writ large benefits. Think about the people who can't think of starting a company now because it's too expensive to live here in Silicon Valley. Never mind the teachers and nurses and firefighters who are needed to make for a well-rounded society.
A major point of "Das Kapital" is the extraction of value by property owners due to mere fact of being an owner of that property when somebody else's use of the said property produces the said value. Lenin in the phrase i cited states his view that land is the main domain where conflict of interests between such rent-seeking owners and efficient users of the land leads to and must be addressed by revolution.
State ownership of land, by the virtue of outright elimination of rentiers and making everybody a renter from state, is obviously the ultimate approach to whatever issues are [perceived to be] stemming from such rent-seeking. LVT is a mild version of that approach as it doesn't eliminates rentiers, it just makes them into renters of their land from state - "economic rent of land" :
you're basically citing Das Kapital :)